Correlation Between Hengli Industrial and Hunan Mendale

Can any of the company-specific risk be diversified away by investing in both Hengli Industrial and Hunan Mendale at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Hengli Industrial and Hunan Mendale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hengli Industrial Development and Hunan Mendale Hometextile, you can compare the effects of market volatilities on Hengli Industrial and Hunan Mendale and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Hengli Industrial with a short position of Hunan Mendale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengli Industrial and Hunan Mendale.

Diversification Opportunities for Hengli Industrial and Hunan Mendale

0.77

Correlation Coefficient

Hengli Industrial  Hunan Mendale

Poor diversification

The 3 months correlation between Hengli and Hunan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Industrial Development and Hunan Mendale Hometextile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Mendale Hometextile and Hengli Industrial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Hengli Industrial Development are associated (or correlated) with Hunan Mendale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Mendale Hometextile has no effect on the direction of Hengli Industrial i.e., Hengli Industrial and Hunan Mendale go up and down completely randomly.

Pair Corralation between Hengli Industrial and Hunan Mendale

Assuming the 90 days trading horizon Hengli Industrial Development is expected to under-perform the Hunan Mendale. But the stock apears to be less risky and, when comparing its historical volatility, Hengli Industrial Development is 1.69 times less risky than Hunan Mendale. The stock trades about -0.27 of its potential returns per unit of risk. The Hunan Mendale Hometextile is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  308.00  in Hunan Mendale Hometextile on September 28, 2024 and sell it today you would lose (48.00) from holding Hunan Mendale Hometextile or give up 15.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Hengli Industrial Development  vs.  Hunan Mendale Hometextile

Hengli Industrial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Industrial Development are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Hunan Mendale Hometextile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Mendale Hometextile are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Mendale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hengli Industrial and Hunan Mendale

The main advantage of trading using opposite Hengli Industrial and Hunan Mendale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hengli Industrial position performs unexpectedly, Hunan Mendale can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Hunan Mendale will offset losses from the drop in Hunan Mendale's long position.

The idea behind Hengli Industrial Development and Hunan Mendale Hometextile pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.